The vast majority of flats sold in England and Wales are leasehold. Unlike a freehold house that rests on its own plot of land a flat is just a part of a structure which contains other houses. A specific occupant can not own the freehold since the arrive on which the building is built is shared with other occupiers. Consequently the developer of the building generally retains the freehold and sells long-lasting leases to specific flat owners or 'leaseholders'.

In leasehold blocks there will always be a freeholder or property manager and even if a flat is promoted as freehold it simply suggests its owner has a share of a freehold, which would be held by a resident freehold company. There are extremely couple of flats that are commonhold, which is a reasonably recent type of period where the flat-owners also own the common areas and there is no landlord/flat-owner relationship. Owners of commonhold flats have no rights or protection under property manager and renter legislation and a prospective buyer need to seek legal recommendations before buying.

What is a lease?

A lease, which is a legally binding written contract, transfers possession of a flat for a concurred set period of time understood as the lease 'term'. It specifies the occupier's obligations such as the payment of service charges and ground lease and the centers readily available such as parking and the access to and pleasure of common areas, such as gardens or homeowners' lounge.

There is no standard kind of lease for existing or recently developed residential or commercial properties despite the fact that a lot of leases will include many comparable terms. Residential leases within the very same residential or commercial property will normally be considerably the very same however may differ in some aspects such as the proportion of the service charge payable.

The terms of the lease

Most of the times it will be difficult to change the lease terms and for that reason potential buyers of leasehold residential or commercial property ought to look for specialist recommendations at an early phase in the purchasing procedure to guarantee they fully understand the obligations and costs included.

The Leaseholder Association (LA) advises any prospective purchaser of leasehold residential or commercial property to get a copy of the lease at an early stage. Sometimes a Leaseholders' Handbook will be used by the seller but this will just consist of a summary of the primary lease terms. This is no replacement for the full lease, which will require completely taking a look at by a lawyer or professional adviser to see if all of its terms will be appropriate to the potential buyer.

When a leasehold residential or commercial property is sold or moved, all of the rights and duties of the lease will pass to the buyer, consisting of any future payments of ground rent and service fee. It will either be difficult or extremely tough to change the terms of the lease and for that reason the prospective purchaser must understand they would be legally bound by its terms. (Please see the LA Information Sheet 110 Lease Variations)

The lease ought to set out in some detail the contractual rights and obligations of the leaseholder and the freeholder. In many cases there may be a 3rd party to the lease such as a management company and if so the lease ought to likewise provide a summary of their obligations. Typically the freeholder will have the contractual obligation for the management and maintenance of the structure, exterior and common parts of the residential or commercial property, which might consist of any gardens or premises. Many freeholders will appoint managers to perform the above in addition to other tasks such as setting and collecting service charges and producing accounts. The leaseholder must keep in mind that they will be liable for all of the expenses of the services being supplied.

The lease will usually set out some conditions, called covenants, connecting to not only the use of the common locations however likewise the use and occupation of the flat itself, which may require to be considered in advance. A purchaser of a leasehold flat will often be needed to enter into a brand-new deed of covenant which gives the landlord the right to take enforcement action if the flat-owner stops working to follow the agreed conditions.

What are service fee?

Flat owners are normally required to pay a contribution towards the upkeep of the whole structure and the typical parts. This is referred to as a service charge. The lease must state the proportion of service charges payable, which might be equal with all other occupiers or individually computed to reflect the size of the flat and the services enjoyed. If the lease makes provision for a parking area this might incur an additional charge.

A potential purchaser must acquire details of the level of charges for the residential or commercial property they are considering buying at an early stage and demand copies of the represent the previous 2 to 3 years. They should also ask whether there are likely to be substantial increases. The quantity of service charges will differ from year to year in relation to the costs of the upkeep of the structure, which will undoubtedly rise. The potential purchaser must be aware that these boosts may typically be greater than the rate of inflation. (Please see the LA Information Sheet 103 Service Charges).

If I am purchasing my flat why do I have a landlord?

The freeholder is likewise called the property manager due to the fact that he owns the land or ground on which the building is built. This entitles the freeholder to charge a yearly ground lease to all occupiers of the structure and the lease ought to define the proportion of lease payable, which my differ according to the size of the flat. The landlord is responsible for the maintenance of the premises and all the shared parts of the structure such entrances, corridors, staircases and any shared centers such as a lounge, laundry space or visitor space. These are collectively understood as the 'typical parts'.

When leasehold flats are promoted for sale the identity of the property owner is not always made clear. The property manager might be a private, a private company, the regional authority, a housing association or a Homeowner Freehold Company (RFC). A possible buyer ought to think about the ramifications of each kind of landlord and would be encouraged to discuss this with the solicitor or conveyancer. Where there is an RFC the purchaser may be entitled to acquire a share of the company that owns the freehold, which might bring additional responsibilities in addition to advantages. (Please see the LA information sheet 113 Enfranchisement).

What does the buyer own?

Strictly speaking a buyer will never actually own a flat or apartment since one can not individually own the traditionals of the structure or the land the structure rests on. What is obtained is the right to unique ownership and occupation of the residential or commercial property for the period or regard to the lease, normally 99 years or more. A lease is merely an agreement with the freeholder of the structure that grants the right of possession. The longer the regard to the lease the greater is its market price. Unlike a rent-paying renter, a leasehold owner keeps the right to offer the leasehold ownership and benefit from boosts in residential or commercial property prices.

Ownership will normally use to whatever within the boundaries of the flat however it would not usually consist of the external walls or windows. Typically the structure, the typical parts of the building and the land the whole premises are located on would be owned by the freeholder. The freeholder would be accountable for the repair work and maintenance of the parts of the building they retain. This obligation is normally handed over to a professional company called a managing agent, which may be an independent business or a subsidiary of the freeholder. The freeholder has no obligations to finance the maintenance of the structure or premises. All these expenses must usually be satisfied collectively by the leaseholders. The prospective buyer is advised to ask their lawyer to examine the lease to clarify the parts of the developing the flat-owner will be accountable for and the likely expenses involved.

What info is vital before buying?

The length of the unexpired term of the lease is one of the very first factors to consider to a potential purchaser as this will be one of the main factors affecting the cost spent for the residential or commercial property and the re-sale worth. Although the huge bulk of leaseholders will have a legal right to a lease extension at a later date this will involve additional expenses. In many cases buyers would be recommended to make sure there is over 80 years remaining on the lease. (Please see the LA Information Sheet 112 Lease Extensions). In the huge majority of cases the lender will only give a mortgage if there is a suitable duration delegated run on the lease, usually at least 60 years.

A leaseholder's financial obligations are set out in the lease, which will make flat-owners responsible for service fee and for the most part ground rent. If charges are not set out plainly and unambiguously in the lease they are unlikely to be payable.

A buyer needs to be satisfied the building has been correctly kept. It is necessary to see 3 years service fee accounts and observe the pattern in the quantity owners have been required to contribute. The accounts will reveal if there is a high level of service charge defaults, which could lead to other leaseholders paying additional amounts to fulfill the money shortfall.

Potential purchasers ought to understand whether there is a reserve fund and just how much there is in the fund. It will typically be called a sinking fund, contingency fund or future upkeep fund and must be represented in money to meet future significant expenditure. This is an essential consideration when purchasing a flat as the lack of a reserve fund or insufficient balance in the fund could suggest that the purchaser will need to pay a significant swelling amount when any significant works are required. Diligent landlords and handling representatives will carry out a structure survey and prepare a cyclical maintenance strategy demonstrating how much money will be needed to fund the future upkeep of the building. Buyers ought to ask to see this strategy and compare it with funds in the reserve fund.

The lease ought to mention whether a reserve fund is financed from leaseholders' annual service fee contributions, a lump amount at the time of re-sale or a combination of both. (Please see the LA Information Sheet 105 Reserve Funds).

A flat owner will become part of a community of owners and the lease will set out fundamental rules that are essential for everybody's well being. These responsibilities, which are in some cases described as covenants, are enforceable in law and if they are constantly ignored in breach of the lease it might ultimately result in the surrender of the lease and foreclosure of the flat. Before acquiring a flat buyers need to check out the lease thoroughly and completely understand these responsibilities.

In many cases the potential buyer will need to obtain a mortgage and therefore will need to take into consideration the level of service charges and rent that will be payable when considering the quantity of mortgage payments that may be workable. A mortgage lender will normally require an assessment of the residential or commercial property to be carried out however the prospective buyer requires to be aware that this is no replacement for an expert study and satisfying enquiries about future scheduled upkeep.

Additional information will be obtained by the purchaser's lawyer sending to the seller's lawyer a standard survey released by the Law Society, referred to as LPE1.

A copy of this questionnaire is offered on the LA site or from the Law Society at www.lawsociety.org.uk. Buyers are recommended to study this details carefully before conclusion.

What rights does the leaseholder have?

One of the most essential is the right of peaceful satisfaction of the flat for the term of the lease, which means the right to profession without any undue interference from the landlord or manager. This right ought to encompass the proprietor or manager addressing any neighbour or problem problems that may occur. The leaseholder deserves to expect the property owner to perform all of the duties that are required by legislation and the regards to the lease such as the upkeep, caring for the finances of the block and ensuring no resident triggers sound or nuisance that affects their neighbours. The leaseholder has a number of legal rights in relation to challenging service charges, acquiring monetary details and taking over responsibility for the management, which are covered in detail in other LA info sheets.

What are the leaseholders' responsibilities?

As leases are differently worded leaseholders in one block may have various obligations to another block nearby. However, there will be some standard clauses that would be found in practically all leases and these are a few of the most commonly discovered obligations:

- To keep the within the flat in an affordable state of repair work.
- To pay the service charge and ground lease in full without hold-up.
- To behave in a manner which will not produce annoyance for neighbours.
- To ask for proprietor's consent, usually for structural modifications or subletting.